OECD forecasts modest growth for Mexico in 2019 and 2020


The Organization for Economic Development and Growth (OECD) reduced its growth forecast for Mexico to 1.6% for the remainder of the year, while by 2020 the Gross Domestic Product of Mexico will only manage to expand 2%.

Mexico is very attractive in terms of investment and we must ensure that it continues to have healthy, stable and transparent public finances.
Mexico is very attractive in terms of investment and we must ensure that it continues to have healthy, stable and transparent public finances.

"In general, the growth will be too modest to allow a reduction in the high rates of informality," said the organism headed by José Ángel Gurría when it released the document Economic Perspectives 2019:

The drop in oil production continues to represent a break on the economy and tax collection. Investment remains scarce, as a reflection of global and domestic uncertainty, but also of fiscal consolidation, which has helped to stop the rise in public debt, although with a redistributive function that generally lowers fiscal policy.

Furthermore, the report emphasized that moderate growth has not improved the relative standard of living. This reflects low productivity growth, in turn, influenced by poor educational performance, the fragile rule of law, barriers to competition and widespread informality.

Many of the reforms implemented recently to open up the economy have not yet come to fruition because it takes time for their effects to materialize, implementation is still in process and institutional reform lags behind.

1.6% growth outlook is subject to considerable risks

First of all, the rapid implementation of investment plans to boost oil production would increase exports and decrease the deficit in energy trade, but the goal of increasing oil production in the projected magnitude will require additional private investment.

This, coupled with a firm commitment to fight crime and widespread corruption, could create a more favorable business environment.

"The increase in crime and insecurity negatively affect economic activity and the well-being of citizens, particularly the disadvantaged and women. Strengthening institutional quality is a priority. Improving the weak rule of law will also facilitate the effective implementation of policy initiatives in other areas," the document said.

On the other hand, the international body warned of the uncertainty in terms of policies, also in regard to the need for all parties to ratify the new trade agreement between Canada, Mexico, and the United States, the slowdown in the global economy and the renewed commercial tension would hinder exports and depress private investment.

Recommends to modify the tax system

According to the OECD, in Mexico, there is room to raise the tax-GDP ratio in an inclusive manner, by broadening the tax base and continuing to combat tax fraud and evasion, even with the strengthening of tax administrations at the federal and state levels.

"Additional VAT could be collected if the standard rate is applied more generally and at the same time subsidies are implemented for the population living in poverty ... The threshold for the maximum marginal rate of personal income tax is relatively high and those who receive High incomes benefit from many exemptions and deductions, "the report explained.

According to the agency, the 2014 tax reform raised non-oil revenues, but the tax collection is still lower than that of the OECD countries and Latin America and the Caribbean on average.

Moreover, he added, the reform did little to reduce inequality in terms of disposable income. Also, the low overall tax collection limits social spending and investment in infrastructure.

For the OECD, federal fiscal relations affect the quality and efficiency of the provision of public services.

"The current mechanisms of fiscal compensation have not fostered regional convergence nor have they reduced inequality between states. Clarify the responsibilities of the different levels of government and achieve a better adjustment between the provision of services and tax collection would improve accountability at the state and municipal levels and raise tax collection".

He also pointed out that social programs are too many and do not always reach the poorest population.

In this regard, he explained that "using the database of beneficiaries of the Integrated Social Information System (SISI) and combining it with the social census could help detect the absence of rights, duplication of beneficiaries, material deficiencies in households and duplication of social programs."

Mexico's economic and business cycle picks up modestly, OECD

According to the Organization for Economic Cooperation and Development, the MEI for Mexico recorded a reading of 99.1 points, the first at this level in 12 months.

Mexico's economic and business cycle, measured by the OECD's Composite Leading Indicators (MEI), recorded a modest new breakthrough in December, the fourth consecutive month of a hundredth of a point. These indicators identify early signs of the trend in economic activity and the business cycle in the months to come.

According to the Organization for Economic Cooperation and Development, MEIs for Mexico registered a reading of 99.1 points, the first at this level in 12 months, which nevertheless completes one year, fluctuating below the average trend of 100 points.

Data from the entity show that the average of the 34 OECD countries, registered 99.2 points in their average Compound Leaders Indicators, which spun six consecutive months below the long-term trend of 100 points, and that according to its reading, means that They are in a phase of slowing growth.

When crossing the data of the MEI of Mexico with the OECD countries, it is observed that before the deceleration of the business and economic cycle of the conglomerate, they have approached the consistent tendency of the Mexican cycle.

The MEI of the OECD is integrated from the reading of indicators such as industrial activity, the performance of listed companies, GDP and consumer confidence, among others.

And the comparison is disclosed two months away, assuming that they already have the information of all the members that allows an analysis.

Among the member countries of the Organization that make up the Group of Seven, that is, the most developed economies of the members, the average index below 100 points is observed for the seventh consecutive month, which according to the OECD reading, means that they are in a deceleration phase.

The highest reading of these indicators for the G7 of the OECD occurred in March 2018, when they reached 100.2 points. As of that moment, a modest and consecutive slowdown began that took them up to 99.2 points where they were in December, the month object of the report.

The aforementioned advanced economies, the seven most developed, are the United States, Canada, the United Kingdom, France, Germany, Japan and Italy. And all have registered their MEI below the trend of 100.0 points since last October.

Among them, the United States, which is the leading economy of member countries and the world, recorded an MEI of 99.4 points in December, this is just above the level reached by the OECD group and slightly above the G7 trend. In addition, it completes a fourth consecutive month of a modest slowdown.

Among the G7, the economy whose cycle is most dynamic is Japan, with a record of the indicators of 99.8 points, which nevertheless completes a fourth consecutive month decelerating. The OECD reading is of "stable signs of growth".

And at the end of the G7 is the United Kingdom, with an MEI at 98.5 points, read by the Organization as "weakness in growth".

The Organization takes the monthly pulse of the emerging economies that, without being members, have to determine importance in the global economic performance. It is about Brazil, Russia, India and China, the BRIC economies.

Among them, the one that remains as leader, is Brazil, with an MEI in 102.3 points. Of the four BRICs, China and Russia recorded indicators below the long-term trend of 100 points. However, China, the second largest economy in the world, showed a modest rebound, the first in 12 months.

OECD highlights Mexico as a very attractive destination for investment

Mexico is a very attractive country as an investment destination, and its economy will grow faster if it maintains healthy finances and eliminates corruption, said the secretary general of the Organization for Economic Cooperation and Development (OECD), José Ángel Gurría Treviño.

In the framework of his recent visit to Mexico, he highlighted that President Andrés Manuel López Obrador starts his administration with economic stability, relatively low debt and good access to markets.

"The whole world is very aware of what is happening in Mexico, followed very carefully the electoral process and is aware that there was a significant change, not only of party, but of tendency, therefore, there is much interest in ensuring that things work well in the country, "he argued.

After intense days of activities in Mexico, where he met with more than 12 secretaries of state, officials of agencies and representatives of the private sector, Gurría Treviño took time to attend public and family commitments before returning to Paris, headquarters of the OECD, of which he is secretary general since June 2006.

With a long career of more than 30 years in Mexico as a public official in the financial and diplomatic sector, he shared with Notimex the current vision of the country in the international organization, in which he will conclude his third five-year term in 2021.

In this way, the Secretary General of the OECD stressed that Mexico has 130 million inhabitants, two million square kilometers of territory, a huge market and free trade agreements in all parts of the world.

And after the presidential election of last year, in which Andrés Manuel López Obrador won, a normal change of government was carried out from the point of view of its implications, options and alternatives, and "it is perfectly legitimate for a new government to change the emphasis or present new alternatives or priorities. "

This, "because they were mandated to do different things, I think the identification of those priorities is very important ... and that is why we are here, to say: (in the OECD) we are ready to work not only with you but for you".

Thus, he said, the OECD will accompany the new government of Mexico in its efforts to generate greater economic growth, sustainable and inclusive, and once the priorities of the new administration are known, it is interested in giving its support in the area that corresponds to them.

He stressed that Mexico is very attractive in terms of investment and we must ensure that it continues to have sound, stable and transparent public finances, as well as eliminating vices and corruption, coupled with integrity and transparency procedures.

"That is going to make Mexico more attractive every time, to be recognized as an important investment destination and, therefore, to help us grow faster," said Gurría Treviño in an interview at a hotel in the area of Polanco

President López Obrador, he said, receives a country with economic stability, relatively low debt and good access to markets, but also a country with almost half of the population with some degree of poverty or vulnerability, in addition to many needs unsatisfied in health, education and infrastructure.

On the other hand, he said, Mexico is still in the implementation stage of many of the reforms that the previous government did, in addition, the new administration has a very important reform agenda of its own, not only legal but institutional.

"You have to transform the institutions", help institutional change so that, observing the best practices and the cases of those who already had this kind of doubts or intentions of change, are facilitated and accelerated.

He noted that the structural changes that were approved at the beginning of the previous administration are still being implemented, which led Mexico to be considered the most reforming country in the OECD.

Now, he estimated, there is a need for a second generation of reforms, which have more to do with the quality of the Mexican society that is wanted and aspires, and for that reason should be oriented to issues of the rule of law, security, struggle for integrity and against corruption.

"The mandate that this government receives is very clear, that was against corruption, against insecurity and, therefore, it has to react to that mandate and the government, by definition, can say, if I received this mandate because I have to comply. "

Gurría Treviño considered that one of the most important issues is how to support this government to comply with those mandates that it received from the population through voting, and that can then improve the quality of government.

In his opinion, the fight against corruption is a fundamental issue for people to regain confidence in the government.

To grow, it is necessary that markets have confidence in the future of Mexico and then take specific actions and decisions, considered the leader of the international organization, of which this country is a member since May 1994.

He stressed, for example, that the budget for 2019 that the government proposed to Congress was well received in international markets, "it fell very well, it was very well received" because it is congruent in continuing with a reduction in public debt.

The approved budget surprised by its sobriety, because it is trying to balance good public finances and debt reduction, said the former Secretary of the Treasury during the period 1998-2000, in the government of Ernesto Zedillo.

However, he said, we must also avoid that the austerity undertaken by this administration cuts salaries to the people in charge of monitoring integrity and fighting corruption, that is, that they will be made vulnerable, "not so much that it burns the holy not so much that it does not shine ".

On the cancellation of the construction of the airport in Texcoco after a public consultation, he said that although the issue was very controversial, the consequences of this decision with the repurchase of bonds have already been addressed.

Thus, he said, the new government assumed the cost of not continuing with the construction of the airport in Texcoco, started in the past administration, and now there are other issues and other priorities, there are other things that have to be understood.

"What we wanted on this occasion, in this visit, is to identify them to know all the capabilities of the OECD in that we can help the government forward," he said.

Gurría Treviño also referred to the position taken by the new Mexican government in the case of Venezuela, when it decided not to sign the declaration of the Lima Group, which urged Venezuelan President Nicolás Maduro not to assume a new mandate.

He said that the non-intervention is a traditional policy of the country that he practised when he was chancellor, and due to the geographical position of Mexico, it must be constantly remembering this issue.

"More than the particular issue of a country or a situation in a South American country that has problems, it is to say: remember that there are no interventions, no intervention in internal affairs, that is our rule and, therefore, we demand that the others also fulfil it. It's like they say: I'm telling you Juan so you can listen to Pedro. "

On his visit to Mexico on an official mission, he reported that he met with more than 12 secretaries of State and holders of the Superior Audit of the Federation, the Mexican Social Security Institute and leaders of business chambers, among others.

The objective of these meetings, in some of which delivered studies commissioned by the previous administration, was to know the priorities of the new government in each of the different dependencies, to see how it can be supported.

In this way, there will be continuity in the relationship between the OECD and Mexico despite the change of government, which will define its priorities, and in which the international organization will provide accompaniment.

Gurría Treviño clarified that to no other country the OECD tells him what he has to do because that corresponds to his citizens; "Mexicans are always the ones who know what to do with Mexico, in addition, there is a government with a very broad mandate."